Posts Tagged ‘Money’

Investments Explained - Part 8

Personal Finance | Posted by C.C.Mitchell
Apr 05 2009

In the recent down turn of the economy, many of my co-workers and I have had ongoing discussions on

Mutual Funds and athe Market

Mutual Funds and the Market

investment strategies, and if it is still a good idea to invest our hard earned dollars in an ever declining market. This has prompted me to touch on this topic once again as many of my colleagues display at least some level of confusion and doubt.

Perhaps it would be prudent to explain in more depth some of the investment ideas from my last post on investing. For instance we discussed the 401(k), the IRA and the Roth IRA and the investment options for them like Small Mid and Large Cap funds. Then their are International Funds and Bonds.

First of all, all of these retirement accounts, 401(k)s and IRAs and Roth IRAs, all have one thing in common. They all invest your contributions into various Mutual Funds.

So what is a Mutual Fund?

A Mutual Fund is a collection of stocks purchased by a company that is in the business of trading stocks. It’s simple really, you see McDonald’s sells Hamburgers, Pepsi Cola sells soft drinks, and Ford Motor Company sells cars.

A Mutual Fund is a company that buys stocks in numerous different companies like those listed above  for a profit. By owning stock in these companies the owner makes money when the company makes money. So if McDonald’s turns a profit and you own stock (a share of the company) you make a profit equal to your share of the company. Many companies pay a dividend to the shareholders on a quarterly basis based on the companies success. Mutual Funds are companies that employ a whole staff of people to decide which stocks to buy and sell and make money for the fund. It is called a Mutual Fund because many different people invest money in these companies collectively. The company is therefore Funded Mutually by a mass of contributors. Gee that was tough wasn’t it.

Is it safe Now?

I have gotten an Email or two from readers wondering why I would advise people to invest in such horrible market, one of which was laden with curse words.

While I am not a professional, they will tell you the same thing. A professional will tell you that Stocks are on sale right now. When you buy a share of stock at a price 70% lower than its price last year you will make a 70% profit once that stock returns to its normal price range.

No, there are no guarantees but the market has always recovered from these recessions. These “dips” in the market are essential to overall capital growth.

This is my philosophy and my plan.

Its a Cracked World.

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AIG Bonus Outrage Uncovered

Politics | Posted by C.C.Mitchell
Mar 17 2009
American International Group, Inc.

Image via Wikipedia

What irritates me the most about AIG bonuses? The fact that The President and the Treasury Secretary Timothy Geithner new about this long ago and said nothing until it was 1) to late to stop them and 2)the public found out about it. Now it’s an outrage. When President Obama and his staff discovered that the public had been informed of the bonus pay outs and of their out right disgust of it. Now its an outrage.

I was under the impression that AIG was engaging in something illegal or on the fringe of the law, as you may have read in my last post here at cracked world. This is what the White House people are leading every one to believe. They want us all to believe that this is some sort of shocking revelation, an epiphany, an underhanded trick by a bail out recipient. But this is not the case, AIG disclosed its intentions for retention bonuses some time ago.

As told in The Mecury News

“AIG disclosed its retention-payment program more than a year ago, and the amount of the bonuses had been widely reported. But as the payments were coming due in recent days, the White House began to express its indignation”

Do I like the fact that AIG is handing out bonuses to, as Barney Frank put it, “reward failure?” Hell no! But this is not illegal by any means. It should be, but those all mighty infinitely wise people in Washington made it legal.

As shown in a Foxbusiness story

While the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to the bill. The provision, now called “the Dodd Amendment” by the Obama Administration provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009″

This opens the door for AIG to pay bonuses to top executives. Though Christopher Dodd denies adding the amendment to the Stimulus Bill he has little for an explanation of its origin.

“I can’t point a finger at someone who was responsible for putting those dates in,” Dodd told FOX. “I can tell you this much, when my language left the senate, it did not include it. When it came back, it

Scooby-Do Dog Detective

Scooby-Do Dog Detective

did.”

It’s a mystery, quick some one call Sherlock Holmes, Columbo  or even Scooby-Do, it’s a mystery! Oh by the way.

Separately, Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org. Also, one of AIG Financial Products’ largest offices is based in Connecticut.

Does this excuse what AIG is doing? Again, Hell No! At the very least they have a moral obligation to decline these bonuses. If these people had even the smallest conscience  they would refuse to accept the payment. I know I know its a million dollars; for some even more. But could you sleep at night after taking this money?

Now lets consider this. The $165 million bonuses total to less than 0.10th of 1% of the $170 billion the government gave AIG in bail out funds.  And the White House is supposed to outraged about this?

  • What about the earmarks they fed into the $787 billion Stimulus bill?
  • What about the 8500+ earmarks in the $555 billion omnibus?
  • How much of those bills did earmarks make up?

I’m sure it’s far more than $165million, yet the Obama team justifies ti by saying its an insignificant amount of the total bill itself in both cases. How are earmarks any different from AIG retention bonuses, they are both inserted so a politician can “buy” their constituents.

A chart detailing AIGs recipients of Contributions is detailed at The Bobo Files.

Now things are looking clearer, it’s a Cracked World.

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Uptick Rule May Crash the Party on Short Selling

Economics, Politics | Posted by C.C.Mitchell
Mar 13 2009
U.S.
Image via Wikipedia

On Tuesday,Chairman Mary Schapiro of the SEC (Securities and Exchange Commission), has said it is considering reinstating the Uptick Rule; possibly as soon as April of this year. Designed to prevent short sellers from driving down the price of a stock or security for their own profit, the uptick rule was removed from use in the summer of 2007.

The uptick rule as defined by Investopedia:

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1 and was implemented in 1938. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines.

Lately the Members of Congress have been applying pressure to the SEC to reinstate the uptick rule to hamper short selling stocks which is detrimental to a down market because it fuels the fire of a downward spiral. Rep. Gary Ackerman (D-N.Y.), a member of the House Financial Services Committee, reintroduced legislation that would reinstate the uptick rule within 90 days of the signing. He had  introduced thebill in July 2008 also.

According to Washington policy analyst Tom Gallagher, most likely some variant of the old uptick rule will be reinstated but in its original state the measure is some what irrelevant.

As stated in a Foxbusiness article:

In his research note, Gallagher said “simply reinstating the old uptick rule” — when stocks traded in 12.5-cent or 25-cent increments — “isn’t regarded as feasible…With the move to decimal trading (in which stocks can trade at penny increments) and the higher volume of trading, it would be very hard to know if one was shorting on an uptick.”

Rather, Gallagher said, one option for the SEC is a “price test” in which a price of a stock would have to increase by, say, three cents or five cents before it could be sold short. Another option, he said, would be a “circuit-breaker approach” to halt shorting when a company’s stock had fallen by a “certain magnitude.”

So what is short selling? This is when an investor borrows shares of a stock from a broker, sells it to others, and then hopes to buy it back at a lower price before returning it to the lender. The difference is the borrowers profit in this little deal. It sounds kind of shady but it actually is legal and not at all an uncommon practice in securities investment.

Here is an example put forth by The Huffington Post of selling a stock short:

Short-sellers bet against a stock. The practice, which is legal and widely used on Wall Street, involves borrowing a company’s shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.

If a company stock was trading at $50 and a trader anticipated that it would decline, he could borrow shares but couldn’t sell them until after the stock traded higher, or “ticked up.” If the shares had fallen to $40, for example, they couldn’t be sold until the price had risen to at least $40.01.

According to a Reuters report today, Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, wants the uptick rule reinstalled with haste.

Although research on the effectiveness of the uptick rule is inconclusive, it would instill some confidence in the market and at least make it look like the feds have some answers to the plunging markets. The uptick rule may also create some stability to the markets and help stave off the steep drops that stocks have been experiencing for the last several months.

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FDIC S.O.L.? Could FDIC go Broke?

Economics | Posted by C.C.Mitchell
Mar 06 2009

Is it possible that the FDIC (Federal Deposit Insurance Corp.) could go bankrupt? The concern has escalated as more reports indicate a larger number of banks crashing in 2010 than as of recent.

FDIC  insured banks have always offered the piece of mind that if anything ever happened to a bank your savings would be safe under the umbrella of The FDIC. Just a few short years ago FDIC covered accounts up to $100,000, an amount more than sufficient for the average citizen to have their entire savings covered by the insurance. Last fall the coverage was expanded to $250,000 because the banking crisis was applying pressure to small businesses many of which had holdings above and the $100,000. This expanded coverage however puts more stress on the funds of the FDIC.

In response to the impending insolvency of the FDIC, Sheila Bair the FDIC chairman announced the approval of a one-time emergency fee along with other assessment increases on the banking industry. Naturally the bankers were furious, small community bankers can’t help but feel that they are paying the price for the greed and incompetence of Wall Street bankers. Not to mention the fees could eat up from 50% to 100% of their 2009 earnings. Of course these arguments will fall on deaf ears, as will the arguments of the bank customers as we will ultimately pay these additional fees; the banks will surely pass them on to us anyway.

The fees proposed by the FDIC would generate $27 billion by the end of 2009. The FDICs coffers were emptied of almost half its funds in the final quarter of 2008; the fund lost $15.7 billion, falling from $34.6 billion to $18.9 billion.

The FDIC has access to $50billion form the Treasury Department, but Chairman Shiela Bair said,  “Banks, not taxpayers, are expected to fund the system”, and that asking tax payers to flip this bill would give a black eye to all banks and not just the ones that are in trouble and going bankrupt which is causing the depletion of FDIC Funds in the first place.

This news does not bode well for the economy in general. It is sure to bring down consumer confidence; some may even move to withdraw their savings out of fear of loosing it if their bank fails.

But would the government even let the bank insurer go broke?

Most think not, especially when the problem can be fixed without the redirecting of any more tax dollars.

That being said, what would the effects of an FDIC failure be were it to happen?

For all the riches of banks and insurance companies, it takes a Cracked World to see a broke insurer of banks. Think of the irony.

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